"Apple Inc. (AAPL) is at the top of our watch list as it is within 5% of the one year low. In our April 14, 2012 test of the quality of Edson Gould's Speed Resistance lines, Apple fell from $636 [adjusted price of $90.85] to our projected level of $424.15 [adjusted price of $60.59] (found here). Now that the stock has achieved our downside target, we expected that a reaction to the upside is likely."
On July 17, 2013, when Apple was trading at $61.47, we re-affirmed our view of the upside potential for Apple with the following commentary:
"Currently, Apple is demonstrating a basing pattern that if successful, could result in a breakout to the upside. At the current levels, we wouldn't be opposed to buying some shares of Apple with the expectation that the stock could decline an additional -25% to -35%."
The work of Edson Gould has proven to be astounding when considered in its context. On April 14, 2012, we posted an article titled "Considering the Downside Prospects for Apple". At that time, we were revising the previous estimates of downside risk done on February 5, 2012 (third party source available here).
What was mentioned on February 5, 2012 is critical to understanding how Edson Gould's downside projections work. At the time, we said:
"The very first thing that we look for, to determine speed resistance lines, is the most recent peak in the price. Because AAPL is continually making new highs, we only need to use the latest price of $455.68 [post split price of $65.09] as our starting point….As the price of Apple increases, so too does the SRL lines based on the work of Edson Gould."
This means that as long as the price of the stock increases to a new high the speed resistance lines are expected to increase as well. Only when the stock starts on a declining trend can we expect that the stock price might go to the conservative and extreme downside targets.
On April 14, 2012, when Apple was trading at $90.89 (pre-split price of $636.23), we said the following:
"…we believe that, based on the current speed resistance lines, no one would expect Apple to decline to our conservative downside target of $424 (post split price of $60.57)…"
The strength of Gould's downside risk estimates is that we didn't even have the peak price of $100.71 set on September 18, 2012 but we were still able to see the conservative downside target of $60.57 achieved. Had we used the peak price, we would have achieved the $67.14 conservative downside target much earlier than the $60.57 level
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.